BOND REPORT: Treasury Yields Dip, On Track For Weekly Declines

Treasury yields pared some of the declines but were still lower in early trade Friday after data showing U.S. consumer sentiment index rose to the highest level since January.

University of Michigan consumer-sentiment survey rose to 97.6 in August from 93.4 in July and comes on the heels of retail sales that notched a 7-month high (http://www.marketwatch.com/story/us-retail-sales-soar-in-july-to-7-month-high-2017-08-15).

Still, the benchmark 10-year yield was on track for a weekly drop amid global flight to safety following terrorist attacks in Spain on Thursday and continued political turmoil in Washington.

The 10-year benchmark Treasury yield was down by 2 basis points to 2.175%, while the 30-year Treasury bond's yield ticked lower by 2 basis points to 2.764%. The 2-year government bond's yield edged lower by less than a basis point to 1.293%.

U.S. bond markets remained relatively volatile during the week, amid political drama, diverging economic data and a revealing set of minutes from the Federal Reserve.

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Dallas Fed President Robert Kaplan, a voting member, is also slated to speak at 10:15 a.m. Eastern. The impact on markets is likely to be muted as he has already spoken twice this week to reporters. Both times Kaplan underlined his concerns over weak inflation and suggested that he would need to see "progress" on that front before he entertained the thought of a further rate increase this year.

Much of the week's trading was driven by sharp swings in political uncertainty as a standoff between North Korea and President Donald Trump's administration abated only to give way to the dissolution of Trump's business advisory councils after Trump responded to the violence in Charlottesville, Va.

"Enough key players in Congress are stepping away from the cast by the Trump presidency that financial markets are marking down prospects of this president being able to achieve any constructive objectives for tax reform, infrastructure spending or health care reform," said Carl Weinberg, chief economist for High Frequency Economics, in a note to clients.

Investors also scrutinized the minutes from the Federal Reserve's July policy meeting, which showed central bankers were finally beginning to concede that the weakness in inflation might not be transitory. Consumer prices have remained soft for five straight months since March (http://www.marketwatch.com/story/us-consumer-inflation-remains-soft-in-july-cpi-shows-2017-08-11).

Bond yields dropped and equities sold off on Thursday in response to a terrorist attack in Barcelona, which left at least 14 people dead and more than a 100 injured after two vans plowed into a crowd in a popular tourist spot.

Elsewhere, European bond markets experience more brisk trading on Friday as they attracted a rush of flows from investors fleeing equities into the perceived safety of sovereign paper. The German 10-year government bond's yield fell 2 basis points to 0.405%, as the Stoxx Europe 600 index fell 0.8% to 3042.7.

For next week, market participants would gear up for the Federal Reserve symposium in Jackson Hole, Wyo. Both Fed Chairwoman Janet Yellen and European Central Bank President Mario Draghi will attend the get-together. But sources at the ECB said Draghi wouldn't announce a major policy shift as previous rumors had suggested, even as the eurozone's economy makes a broad, steady recovery (http://www.marketwatch.com/story/eurozone-recovery-aided-by-dutch-surge-2017-08-16).